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KOGAS signs up US LNG supplies from BP

South Korea has struck a 15-year deal with BP for LNG supplies, covering 1.58 million tonnes per year.

It has an option to extend to 18 years, which would bring the contract’s price tag to $9.6 billion. Supplies will come from the US, Korea Gas Corp. (KOGAS) said. It will begin in 2025.

The Korean company said the deal had been signed with BP Singapore on September 23. KOGAS cited sale and purchase agreements that BP had struck with Freeport LNG and Calcasieu Pass LNG as sources.

Signing up supplies from the US will provide security of supply through diversity of sources, KOGAS said. The country is largely reliant on LNG from Qatar and to a lesser extent Oman.

The company began importing LNG from Cheniere Energy’s Sabine Pass LNG terminal, in Louisiana, in June 2017. KOGAS’ deal with Cheniere allows for up to 3.5mn tpy of LNG to be provided, although the Korean company said it was taking 2.8mn tpy.

KOGAS’ CEO Chae Hee-bong noted an improvement in supply stability but also said the deal would reduce the company’s exposure to high oil prices.

Wood Mackenzie’s Nicholas Browne said KOGAS was “looking to fill up its longer-term LNG supply requirement. It has one 4.9 million tonnes per annum contract with Qatar that expires in 2025”.

BP, meanwhile, is “building market share by buying flexible LNG and then selling into markets on a long-term basis at a fixed margin”, Browne said. “Even if the margin is relatively small, it expands BP’s portfolio and enhances its ability to unlock value through the wider portfolio.”

Freeport LNG is in the process of starting up its first train, with two more trains due to start in 2020. A fourth train is planned. BP signed a sale and purchase agreement (SPA) with Freeport LNG in 2013 for 4.4mn tpy of production, for 20 years. Calcasieu Pass LNG is backed by Venture Global and financial close was reached this year, with the start of commercial operations targeted for 2022. BP signed a deal with Venture Global in 2018 for 2mn tpy of production from the 10mn tpy plant.

The deal for US supplies comes as US President Trump and South Korean President Moon Jae-in held talks in New York, touching on trade, among other things. “I believe that all of this will come to reinforce our already strong alliance,” Moon said, commenting on trade deals struck with the US, including the LNG agreement.

KOGAS’ CEO also held talks with Gazprom in early September on LNG supplies from Sakhalin-2. The two sides were reported by Gazprom to be interested in expanding their co-operation in this area. Gazprom is working on a number of LNG plans, in addition to having its own trading arm.

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